Texas Payroll Conference

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Texas Payroll Conference

Garnishments – All Others

Taunya

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Agenda

• Involuntary Deductions • Garnishment Overview • Federal Tax Levy

• State Tax Levy • Student Loans

• Creditor Garnishments • Bankruptcy

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Involuntary Deductions

• Deductions in which neither the employer or the employee has control

• Employer is required by law to deduct a certain amount and remit to a person or

government agency to satisfy the employee’s debt

• Employer subject to a penalty equal to the amount required to be deducted, plus

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Types of Deductions

• Voluntary

– credit union deductions, direct

deposit, etc.

• Involuntary

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Garnishments

• Many different types of garnishments can be received by the payroll department

• Can be both Federal and State

• Employees can have more than one type

• Employees could have more than one for each type

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Definition of Garnishment

Legal procedure through which the

earnings of an employee are required by

court order to be withheld by an employer

for the payment of a debt

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Deduction Orders

(Generally this is the priority order)

• Child Support • Bankruptcy

• Federal administrative garnishment • Federal tax levy

• Student loan • State tax levy • Local tax levy

• Creditor garnishments • Voluntary deductions

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Priority Exceptions

• Federal tax levy is received prior to child support order

• Bankruptcy may include other levies and child support;

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Consumer Credit Protection Act

• Limits the amount that can be deducted from “disposable income” for child support and

creditor garnishments

• Limits apply if more than one garnishment is in effect

• Limits DO NOT apply to federal or state tax levies

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When Garnishment is

Received in Payroll

• Develop written procedures so all

departments follow the same steps before processing the garnishment in the payroll system

• Policy/Procedure should include the following steps:

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Determine if Your Employee?

• Does the employee currently work

for you?

• Does the name and Social Security

number match your records?

– This doesn't mean you can’t process,

just need to clarify with issuing

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Determine if Legal?

• Need to determine if the garnishment received is legal

• On the proper form?

• From the proper source? • Completed correctly?

• Delivered properly? • Allowed under law?

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Determine Laws to Follow?

• State law is where the employee primarily located for most items

• Obtain source on rules and regulations for states you do business in

• Books, guides, internet are good sources • Legal counsel

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Response to Garnishments

• Form may required a written response

• Time allowed for response is usually limited • Examples:

• Federal Tax Levy – send with first payment • Creditor Garnishment – 14 to 20 days

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Tell the Employee

• Form may require employee notification • Example: Federal Tax Levy

• May be a time limit

• Include form letter from payroll

• Should be done regardless if garnishment requires notification

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Payroll Form Letters

• Create templates for each type of

garnishment department handles

• Inform the employee as to:

– What you have received

– When payroll deduction will begin

– Amount of deduction if known or provide copy of IRS chart for tax levis

– Contact information for deduction questions – Disclaimer on responsibility of garnishment

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Sample Payroll Form Letter for

Garnishment

NOTE: This notice is not meant to be construed

as legal advice but as a sample of the type of form letters that a payroll department may send. It is recommended that payroll

departments get legal advice before issuing notification letters.

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Date: To:

From: Payroll Department

RE: Creditor Garnishment

The attached creditor garnishment (or insert name of garnishment) has been received by the payroll department. To comply with all federal and state regulations

concerning the withholding and remittance of creditor garnishments, payroll will begin withholding on (insert payroll date). The amount withheld will vary from pay day to pay day depending on the amount you have earned on that individual payroll check. The amount deducted is based on the Consumer Credit Protection Act and the

garnishment chart we have enclosed.

If you have any questions regarding the processing of this garnishment within the

payroll department please contact _______________. However, please be aware that the payroll department has no control over the amount of the withholding to be

deducted except to comply with legal federal and state limits under Title III of the Consumer Credit Protection Act. If you have any disputes as to the amount of the garnishment, the legality of the garnishment itself or any other legal matters please contact the issuing court listed on the attached copy of the garnishment. The payroll department cannot delay, suspend or in any way alter the garnishment.

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Payroll Setup of Garnishments

• Keep in separate files in payroll

• Each garnishment should be filed separately even if for the same employee

• Tracking system separate from payroll system for audit, reconciliations, and questions

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Setting It Up

• Always date stamp when garnishment was received

• Process on the same day as received

• Determine priority of order if employee has multiple orders

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Paying It Out

• Different types of garnishments and states have different due dates

• Best to send out on pay date to make sure you comply with all garnishments and state

requirements

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Terminating Employees

• Garnishments and tax levies are deduction per payroll event

• Take normal deduction

• Send the required notifications

• Watch state tax levies as they may required entire amount to be taken

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Security is Important

• Confidentiality is a must

• Payroll should get all garnishment • Only payroll should have access • HR should not have access

• Make sure confidentiality is secure if processing payments through A/P

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Federal Tax Levies

• Form 668-W Notice of Levy on Wages,

Salary and Other Income

• Publication 1494 – To determine

deduction amount

– Charts lists amount exempt from levy

– Deduct from “take home pay”

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Form 668-W

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Form 668-W

• Six part form (Part 6 retained by IRS)

• Part 1 – Employer’s copy

• Parts 2-5 Given to employee

– Part 2 – Employee’s copy to keep

– Parts 3-5 – Employee required to

complete information

– Part 3 and 4 – Employee should return

to employer within 3 days

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Form 668-W

• Part 5 – Employee keeps

• Payroll keeps Part 4 and sends Part 3 to

IRS with first payment

• If Parts 3 and 4 not received use married

filing separately plus one personal

exemption

• Do not use Form W-4

• Use same chart even if year changes

unless employee submits new form

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Form 668-W

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Take Home Pay

• Subtract the following in calculating

take-home pay

– Taxes

– Voluntary and involuntary deductions in effect before the levy is received

– Increases in preexisting deductions beyond employee’s control

– Condition of employment deductions that come after the levy is received

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Deductions Amounts

Federal income tax 307.80 Social security tax 203.98

Medical tax 47.70

State income tax 148.16 401(k) plan contribution (6%) 210.00 Health insurance (pre-tax) 90.00 Total Deductions 1,007.64

Joe receives $3,500 every two weeks from his employer. On August 1, 2013 employer receives Form 668-W stating a federal tax levy was being issued against Joe’s wages for $50,000. Joe claimed married filing jointly with 4 personal exemptions (plus 1 for himself) on Part 3 of the form and gave it to the payroll

department. As of August 1st_{Joe had the following Deductions:}

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Calculation Example

Take Home Pay

($3,500.00 - $1,007.64) $2,492.36

Exempt from Federal Tax Levy

(From 2013 Chart) $1,219.23

Amount subject to Federal Tax Levy

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2012 Publication 1494

Filing Status : Married Filing Joint Return (and Qualifying Widow(er)s) Pay

Period

Number of Eepmtions claimed of Statement

1 2 3 4 5 6 More Than 6 Daily 61.92 76.92 91.92 106.92 121.92 136.92 46.92 plus 15 for

each exemption Weekly 309.62 384.62 459.62 534.62 609.62 684.62 234.62 plus 75 for

each exemption Biweekly 619.23 769.23 919.23 1069.23 1219.23 1369.23 469.23 plus 150 for

each exemption Semimonthly 670.83 833.33 995.83 1158.33 1320.83 1483.33 508.33 plus 162.50

for each exemption Monthly 1341.67 1666.67 1991.67 2316.67 2641.67 2966.67 1016.67 plus 325 for

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Remitting Payments to IRS

• Remit on same day that payments are

made or are due to employee

• Complete back of Part 3 of Form 668-W

and remit with first payment only

• Make payable to “United States

Treasury”

• Put employee information on check, not

stub

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Penalties

• Employers failing to withhold and remit

amounts not exempt from levy are liable for: – Full amount required to be withheld, plus interest

from check date

– In addition a penalty equal to 50% of the amount recoverable by IRS after the failure to withhold and remit

– Penalty not applicable where there is a genuine dispute as to the amount to be withheld and paid over or the legal sufficiency of the levy

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Stopping the Levy

• Must receive Form 668-D

• IRS wants you to continue to withhold

until release is received even if it

exceeds amount on levy

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Form 668-D

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Voluntary Deduction Agreement

• Form 2159 – Payroll Deduction

Agreement

• Totally voluntary for both employee and

employer

• Still need Form 668-D to stop original

levy

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State Tax Levies

• CCPA limits do not apply to state tax levis

under 15 USC 1674(b)(1)(c)

• Limits vary by state but could be:

– 25% of disposable or amount that exceeds 30 times the federal minimum hourly wage – 100% of disposable income (Example: IA, KY)

– Anything the state wants

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State Tax Levies

• Disposable income might match federal or

may not even give a definition

• May or may not have priority over creditor

garnishments

• May or may not require an answer back

• May be able to collect an administrative

fee

• Read state garnishments carefully

• Seek legal counsel

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Student Loans

Congress amended the Higher

Education Act to allow for

garnishment of wages to repay

delinquent student loans

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Student Loans Limits

• 15% of disposable income or amount over

30 times the federal minimum wage which

ever is less

• Increases to 25% for multiple delinquent

student loans

• The order includes a Wage Garnishment

Worksheet to assist payroll in calculating

disposable pay and the wage garnishment

amount

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Creditor Garnishments

• Limit on amount that can be garnished

– 2

5% of disposable income; or

– the amount that exceeds 30 times

the federal minimum hourly wage in

effect

• State laws may still apply and vary

among states

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Disposable Income

• Disposable income is the amount of

earnings remaining after subtracting

certain mandatory deductions from and

employee’s gross pay

• Mandatory deductions include federal,

state and local taxes; unemployment

insurance; workers compensation

insurance; state employee retirement

deductions; other deductions determined

by state law

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Disposable Income and Net Pay

• Disposable income is not necessarily the same as net pay.

– Employee may have deductions from pay that are not mandatory, such as union dues or car loan

payments

• Tips may or may not be earnings

– tips given directly to employee not included

– tips added to bill and given to employee at a later date are included

• Garnishments already in place are not subtracted before determining disposable income

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Calculation Example 1

• Joe’s disposable income for a biweekly pay period are $1,000. Payroll receives a

garnishment against Joe’s wages for a $3,500 debt.

• Determine the lessor of:

– Disposable income minus 60 times minimum wage: $1,000 - $435.00 = $565.00

– 25% of disposable income: 25% x $1,000 = $250 – $250 is the lessor of these two amounts

Therefore:

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Calculation Example 2

• What if Joe already had a child support order in place?

• Joe’s child support withholding obligation is

$275.00/biweekly. Deduct $275 for child support from Joe’s $1,000 disposable income

• Difference between allowed amount for

garnishment and the child support deduction taken: $225 - $275 = ($25)

• The child support deduction of $275 has already exceeded the allowed amount for garnishment; therefore nothing may be withheld for Joe’s

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Calculation Example 3

• Joe’s child support withholding obligation is

$200.00/biweekly. His weekly disposable income is $1,000. Payroll receives a garnishment against Joe’s wages for a $3,500 debt.

• Deduct $275 for child support from Joe’s $1,000 pay • Then determine the lessor of:

– Disposable income minus 60 times minimum wage: $1,000 - $435 = $565

– 25% of disposable income: 25% x $1,000 = $250

• Difference between allowed amount for garnishment and the child support deduction taken:

$250 - $200 = $50

Therefore:

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State Administrative Fee

• Employers are sometimes permitted to

deduct a administrative fee

• Determined by state law and vary by state

–

May be specific to type of order – Examples:

• Arkansas - $2.50 per pay period • California - $1.50 per payment

• Georgia - $25 for first payment, $3 for all others; $1.50 per payment to state